What’s The Difference Between E-commerce And Dropshipping?

So you want to start an online business but can’t decide – should you open an e-commerce store or try this new thing called dropshipping?

Great question. This comprehensive guide will provide you with a clear idea on What’s The Difference Between E-commerce And Dropshipping?

Let’s jump straight into the Key Differences first.

Key Differences – Dropshipping vs E-commerce

DifferenceDropshippingE-commerce
InventoryControlled in-house end-to-end by merchantMerchant purchases and stores inventory
Upfront CostsLow startup costs, easier entry barriersHigher initial investments for inventory etc
FulfillmentHandled entirely by supplierHandled entirely by the supplier
Profit MarginsLower as share revenue with supplierHigher by selling directly to customers
Brand ControlLess control since using 3rd party brandingFull control over packaging, inserts, messaging
Ideal ForTesting unproven product ideasMaximizing profits on proven best sellers
Other BenefitsRapid experimentation, less operational workVolume discounts, custom packaging, higher scalability

Dropshipping and E-commerce seem similar from a distance. I mean, they both sell stuff online, right? But when you look a little closer, you’ll see some big differences between how they operate:

  • An e-commerce store buys inventory upfront and resells it
  • A dropshipping model just acts as the middleman between the customer and the supplier

It’s like the classic “make vs buy” decision. Should you manufacture and hold the inventory yourself? Or outsource the work to someone else?

Both options can build successful online businesses, but which one is right for your goals and budget?

That’s what we’ll unpack today. By the end, you’ll understand:

  • The unique workflows of e-commerce vs dropshipping
  • Key impacts on investment, profit margins, branding
  • When to choose one over the other

I aim to break it down in simple, non-technical terms.

Sounds good? Let’s dive in.

How E-commerce Works

What's The Difference Between E-commerce And Dropshipping

Alright, let’s start with the basics – how E-commerce works.

An E-commerce model is probably what first comes to mind when you think of “online business.” The merchant sets up an online storefront – like an online shop with photos and descriptions of their products.

Behind the scenes, the e-commerce merchant is:

  • Buying inventory wholesale – they purchase, receive, and store the products in some sort of warehouse or fulfillment center
  • Managing logistics – processing orders, packaging items, and shipping out orders to customers

So the workflow looks something like this:

  1. A customer browses the online storefront and makes a purchase
  2. The e-commerce merchant gets the order and payment
  3. They pick and pack the item from their inventory
  4. The merchant handles delivery by sending it to the customer directly

So with the e-commerce model, the merchant owns both the online store and the backend inventory and shipping process.

This allows for a lot of control – but also requires upfront inventory investment and handling all aspects of order fulfillment.

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Make sense so far? Let’s contrast it with dropshipping next.

Understanding the Dropshipping Model

What's The Difference Between E-commerce And Dropshipping

Now let’s explore the dropshipping model.

The biggest difference here is there’s no physical inventory owned or stored by the merchant.

They simply set up an online storefront, just like in e-commerce – but that’s where much of the similarity ends.

With dropshipping:

  • The merchant sets up the online storefront as usual
  • They market and sell products to customers
  • When an order comes in, the payment goes from the customer directly to the wholesaler or dropshipping supplier
  • This supplier then handles the packaging and shipping of the order themselves

So essentially the merchant is just a middleman. They connect customers with products through their shop – but outsource the fulfillment logistics entirely to a dropshipper.

So there are no headaches of storing items, dealing with returns, or shipping hassles. Sounds pretty hands-off, right?

But the tradeoff is the merchant has to give up some margin to compensate that supplier/dropshipper. And they also have less control since someone else handles fulfillment.

So there are pros and cons to each approach. Let’s compare in more detail next.

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Comparing Business Impacts

Alright, let’s go a bit deeper and explore some key impacts on your business for each model. I’ll focus on 3 main considerations:

Investment Costs

  • E-commerce requires more upfront capital – You need to purchase inventory volumes that can tie up a lot of money
  • Dropshipping has lower startup costsYou can launch faster without big inventory buys

For real numbers, if you sold laptops, holding just 10 models with 3 units each could cost ~$15k upfront with e-commerce.

Whereas with dropshipping, you launch with basically just the cost of a web store – hosting, theme, marketing, etc can run under $100/month.

So E-commerce demands greater capital and risk. But in exchange.

Profit Margins

  • E-commerce offers higher profit potential – You can set prices and keep more margin
  • Dropshipping shares margin with the supplier – They handle fulfillment so take a cut

For example, if you sell a $100 widget:

So the investment risks come with the reward of bigger margins.

Brand Control

  • E-commerce maintains full control – You handle end-to-end operations
  • Dropshipping means less control – Rely on 3rd party for storage, packing, shipping

With dropshipping, customers receive branded packaging from your supplier. This can seem less “official” than dealing directly with just your company.

E-commerce requires more money and work but enables higher payoff and consistency. While dropshipping is faster and easier to start but less profitable.

Leveraging Dropshipping To Test Products

One strategic way to leverage the flexibility of dropshipping is to test and validate products before investing in inventory.

Rather than sink thousands into new item inventory that may or may not sell, you can first gauge demand using a dropshipper.

  • Set up a simple single-product site
  • Drive traffic to test interest and conversions
  • Fulfill any orders via your supplier to minimize risks
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This “proof of concept” approach helps answer critical questions without heavy commitment:

  • Is there market demand for this product?
  • What conversion rates does it achieve?
  • How does it compare to other products?

Essentially you’re validating product-market fit on a small scale first. Once you’ve identified winners to invest in, then you can shift to buying your inventory at volume.

So view dropshipping as a rapid, low-cost way to experiment. And transition only your top performers to e-commerce models later.

Growing Your Business with E-commerce

Once you’ve identified winning products, the natural next step is to grow sales and control by transitioning to an e-commerce model.

As your business establishes itself, branding becomes increasingly important. Customers connect more deeply with businesses that control the entire experience.

Other motivations to scale with e-commerce include:

  • Better margins by cutting out the middleman dropshipper
  • Tighter quality control over shipping and support
  • Custom packaging and inserts that reinforce branding
  • Volume discounts from suppliers and shipping partners

Essentially by investing in inventory and logistics capabilities, you reap back-end rewards that further fuel growth.

And the great news is e-commerce technology makes this easier than ever nowadays. solutions handle warehousing, packing, and shipping automatically based on your sales orders.

So view e-commerce as the natural next phase as your business expands past startup mode.

Scaling with a Dropshipping/E-commerce Hybrid

Rather than a rigid “either/or”, another option is to leverage a hybrid dropshipping/e-commerce model when scaling up.

This hybrid approach means you:

  • Manage in-house inventory and shipping for proven top-selling items
  • Maintain dropshipping relationships for testing and launching new products

So you get the “best of both worlds” – control over proven performers to maximize margins, while still having flexibility to experiment with potential new hits.

This balanced fulfillment mix requires some additional work coordinating inventory and channels.

But the benefit is you reduce risk while still having upside, by toggling products between the two models.

Differences in Challenges and Drawbacks

While both E-commerce and Dropshipping have their advantages, it’s crucial to be aware of the challenges each model presents.

Understanding the potential drawbacks can help you make a more informed decision for your online business.

E-commerce Challenges:

  1. High Upfront Costs: Investing in inventory can require significant upfront capital, posing a financial challenge for some entrepreneurs.
  2. Inventory Management: Handling and storing physical inventory comes with operational complexities, including the risk of overstock or stockouts.
  3. Shipping and Fulfillment: Managing order fulfillment, especially during peak seasons, can be logistically challenging and may lead to delays or errors.

Dropshipping Challenges:

  1. Lower Profit Margins: While dropshipping reduces upfront costs, it often comes with lower profit margins as a portion of revenue goes to the dropshipping supplier.
  2. Limited Control: Relying on third-party suppliers means less control over product quality, packaging, and shipping times, potentially impacting customer satisfaction.
  3. Supplier Reliability: Dependence on suppliers introduces the risk of stockouts or changes in product availability, affecting your ability to fulfill orders promptly.

By understanding these challenges, you can better assess which model aligns with your business goals and preferences.

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Remember, there’s no one-size-fits-all solution, and the key is finding the approach that best suits your unique circumstances.

When To Choose Dropshipping

Okay, as we wrap up – when should you choose a dropshipping model?

The main scenarios where dropshipping shines are:

  • Validating or testing new product ideas – use it to rapidly experiment without big upfront bets
  • Launching a business on a tight budget – requires very little starting capital
  • Focusing more on marketing vs operations – perfect if you want to outsource logistics
  • Adding complementary products to an existing store – complement proven sellers with extra items
  • Targeting impulse or gift purchases – easy to add-on fun non-essentials

The key dropshipping benefits are speed, flexibility, and risk reduction when coming into a new space.

It likely won’t produce the fattest margins – but it can test concepts quickly and affordably.

So utilize dropshipping to rapidly experiment and then transition winners later to inventory models.

When To Choose E-commerce

On the flip side, when does it make sense to use a traditional e-commerce model?

Once you’ve validated demand, consider switching to e-commerce for:

  • Maximizing profit margins without splitting with a dropshipper
  • Establishing authentic brand recognition by controlling the entire experience
  • Improving quality control over order fulfillment and support
  • Leveraging volume discounts on inventory and shipping
  • Scaling growth by investing in operations and resources

Essentially the e-commerce path is for established products with proven traction. That’s when you double down to maximize revenue.

In the beginning, dropshipping helps identify those winners faster and more affordably.

Ultimately owning operations yields the highest possible return and brand ownership. Those become crucial as an online business enters its next growth stages.

So use e-commerce to scale what’s working – not to test new concepts.

Final Thoughts – Dropshipping vs E-commerce

Let’s wrap up with some final thoughts.

When launching an online business, dropshipping, and e-commerce offer compelling benefits. The model you ultimately choose depends largely on your goals, risk tolerance, and stage.

Generally, aspiring entrepreneurs should utilize dropshipping to rapidly validate product ideas or enter markets with minimal costs. Its flexibility and speed can help identify winners to invest behind.

However, evolving into e-commerce models is key for scaling what works, controlling branding, and maximizing profit margins in the long term.

Approaching this phased strategy – test via dropshipping then scale top performers with owned inventory – can set e-commerce brands up for sustainable growth.

FAQs on What’s The Difference Between E-commerce And Dropshipping?

How do margins compare between models?

Dropshipping offers lower margins since you split the revenue with your supplier. With e-commerce, you list prices directly and keep a higher share. However, e-commerce also comes with higher operational costs.

Can the two models be combined?

Yes, hybrid models are popular. You can use dropshipping to test new products while managing inventory on proven top sellers. This balances flexibility and control.

What about returns and exchanges?

e-commerce stores handle returns directly, which adds costs. With dropshipping, the supplier manages product returns and exchanges.

How much inventory should be stocked?

For e-commerce, volume and seasonal demand dictate ideal inventory levels. Multi-channel software can help optimize and automate stocking.

How are shipping costs impacted?

If dropshipping suppliers have better shipping rates, it saves costs. e-commerce stores can leverage volume discounts with carriers as they scale order volumes.

What about international expansion?

Dropshipping enables going global more easily since suppliers handle logistics and regulations. With e-commerce, international shipping requires more preparation.

That concludes the article What’s The Difference Between E-commerce And Dropshipping. Hope you enjoyed it. Thanks for visiting.

Hello, I’m Samuel, and I’ve been in the dropshipping business for the past 9 years. Over the years, I’ve had the privilege of helping many novice dropshippers grow their businesses. Based on my experience, I’ve launched this blog to share my insights and knowledge with the dropshipper community.

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